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Bitcoin mining in the UK and far beyond

An insight into the cryptographic puzzle that is blockchain and bitcoin mining

Bitcoin mining in the UK and far beyond

_{Bitcoin mining is the process by which new transactions are verified and added to bitcoin’s blockchain, a public, transparent and immutable ledger. It involves solving complex cryptographic puzzles to validate transactions and ensure the security of the network. To do this, bitcoin mining companies use specialised computers called}_{application-specific integrated circuits}_{(ASICs), which are designed specifically for the purpose of mining. These machines are far more efficient than regular computers at performing the calculations necessary to solve bitcoin’s cryptographic puzzles.}

_{Mining works through a mechanism called Proof of Work (PoW), whereby miners must prove they have expended computational resources to solve these cryptographic puzzles. Proof of Work is crucial for several reasons:}

_Security_{: The computational difficulty of the puzzles makes it impossible for malicious actors (groups or individuals who intend to cause harm) to manipulate the network. To alter a transaction or double-spend a bitcoin, an attacker would need to re-mine all subsequent blocks, which would require an enormous amount of computational power—something beyond the reach of any single entity, organisation or country.}

_Immutability_{: Since every block is cryptographically linked to the previous one, altering any single transaction would require rewriting the entire chain. This, in turn, would require the majority of the network’s total computational power, which is wholly impractical. As a result, Proof of Work ensures that once transactions are confirmed and blocks are added, they cannot be changed, preserving the immutability of the blockchain.}

_{Fixed Supply Cap}_{: Proof of Work also controls the issuance of new bitcoins. Blocks are added approximately every ten minutes, and the reward for mining is halved roughly every four years in an event called the ‘halving’. This ensures that the rate at which new bitcoins are introduced gradually decreases, until the fixed supply cap of 21 million is reached. As we discussed in}_{Section 8}_{, this scarcity is a fundamental aspect of bitcoin’s value proposition.}

_{The bitcoin network is one of the most powerful computational networks in the world. The collective processing power used in mining, often referred to as the network's ‘hash rate’, far exceeds that of the world's top supercomputers combined. The sheer magnitude of computing power provides an extraordinary level of security, making it practically impossible for any entity to acquire the majority control required for an attack. The decentralised nature of mining, spread across countless miners around the globe, further strengthens bitcoin's resilience against breaches or tampering.}

_{In essence, bitcoin mining is the backbone of the network's security, immutability, and the monetary system itself, making it a foundational component of what gives}_bitcoin_{its unique properties as a store of value and medium of exchange.}

Mining incentives

_{Bitcoin mining serves a crucial function within the bitcoin network, and the economic incentives embedded within the process are at the core of its security, immutability, and other monetary properties. Miners participate in mining to earn rewards, which currently consist of a set number of new bitcoins (3.125 BTC as of the most recent halving) plus transaction fees paid by users. The reward structure is designed as an incentive for miners to expend significant resources – mainly energy and computational power – to guess a particular random number. By successfully guessing the required number, miners earn the right to add a block of transactions to the blockchain. This block then becomes part of bitcoin's immutable ledger, which is verified and agreed upon by the entire network.}

_{The incentive to earn bitcoin drives miners to invest heavily in the specialised equipment (ASICs) and energy required for mining. Proof of Work (PoW) plays a critical role in this process for several reasons:}

_{Economic Incentives and Security}_{: Miners are financially motivated to act honestly because doing so allows them to earn new}_bitcoins_{and transaction fees. Attempting to cheat the system (such as double-spending) would require controlling more than 50% of the network's computational power – an essentially impossible feat given the immense scale of}_bitcoin_{’s network. This makes attacks prohibitively expensive and extremely unlikely. PoW, therefore, ensures that the most rational economic decision for miners is to contribute honestly to the security and functionality of the network.}

_Immutability_{: Proof of Work ensures that once a transaction is confirmed and included in a block, it is computationally impractical to alter it. Each block in the}_bitcoin_{blockchain is linked to the previous one through a cryptographic hash, creating a chain of information that becomes more secure with each new block added. Altering even a single transaction would require re-mining not only that block but all subsequent blocks, which is computationally infeasible without the majority of the network's hash rate. This immutability is essential for a monetary system, as it ensures that transactions are final and that the history of ownership cannot be tampered with.}

_{Fixed Supply Cap and Monetary Policy}_{: The reward for mining new blocks halves roughly every four years, a process known as the ‘halving’. This ensures that the rate of new bitcoin issuance gradually decreases, ultimately reaching a fixed cap of 21 million bitcoins. This scarcity, enforced by PoW, underpins bitcoin's value as a store of value. Unlike fiat currencies, which can be inflated at will by central banks, bitcoin's supply is predictable and immutable.}

Bitcoin versus other cryptocurrencies

_{Unlike bitcoin, the vast majority of other cryptocurrencies do not use Proof of Work.}

_{Many cryptocurrencies have opted for alternative consensus mechanisms, like Proof of Stake (PoS), which lacks the same degree of energy-backed security and resistance to centralisation. PoS, for example, can lead to concentration of the power to alter the ledger and / or change the monetary policy of the currency unit, where those with the most coins have more control over the network, potentially undermining its security and fairness.}

_{The second-largest cryptocurrency, Ethereum, recently transitioned from PoW to PoS, touting the promise of scalability and heightened efficiency. However, these promises remain largely unfulfilled, and the supposed advantages have not translated into a real, functional improvement in terms of security or decentralisation. The reliance on PoS inherently shifts the network's dynamics towards centralisation and places power in the hands of those who already have the most, making it significantly less secure as a foundation for money.}

_{Furthermore, even those cryptocurrencies that continue to use Proof of Work have a hash rate that is only a tiny fraction of bitcoin's. The hash rate represents the collective computational power of miners, and has a direct bearing on the security of the network— the higher the hash rate, the greater the security against potential attacks. Bitcoin's hash rate is by far the largest in the industry, making its network orders of magnitude more secure than those of other PoW cryptocurrencies.}

_{This makes bitcoin the only real viable option given the robust security required for a decentralised monetary system. Furthermore, to illustrate its strong network effect, the bitcoin market capitalisation is twice the size of all of the rest of the cryptoassets added together.}

Bitcoin versus other cryptocurrencies

_{Another reason why bitcoin trumps all other cryptocurrencies as an investment is that it is the only one that maintains the characteristics needed for a truly sound form of money:}

_{Security and Immutability}_{: A blockchain is only truly valuable for money if it is secure and immutable, in the sense that its history cannot be rewritten. Without immutability, transactions could be altered, and without robust security, the monetary system could be compromised. Bitcoin’s use of PoW and its immense network hash rate ensure these characteristics are maintained at the highest standard.}

_{Fixed Supply and Decentralisation}_{: Bitcoin's fixed supply of 21 million coins and decentralised nature make it uniquely suited as a store of value. A crypto asset without a fixed supply cap or with centralised control cannot form a better money, as it lacks the key properties that make}_bitcoin_{reliable as a hedge against inflation and as a decentralised, censorship-resistant asset.}

_{Proof of Stake Hype vs. Reality}_{: Many other cryptocurrencies, such as Ethereum, have chosen to adopt PoS as their consensus mechanism, touting its greater scalability, efficiency, and reduced environmental impact. However, PoS has inherent flaws that make it unsuitable for creating a robust and reliable monetary system. The concentration of power in the hands of those who hold the most coins heightens the risk of centralisation. It also lacks the energy-backed security that PoW provides. Ultimately, the promises of PoS have been driven more by hype than reality, failing to deliver the level of decentralisation, immutability, and security that}_bitcoin_{'s PoW network provides.}

_{Ultimately, bitcoin’s use of Proof of Work, combined with its economic incentives, results in an unparalleled level of security and immutability. It offers a decentralised form of money that is resistant to manipulation, making it the only cryptocurrency that fulfils the promise of sound, digital money in a way that is robust and credible. Other cryptoassets, by lacking these features, fail to offer the same value proposition and utility as money.}

The UK mining scene

_{The past decade and a half have seen a sea change in bitcoin mining. In the early days, most of the mining was done by small, often one-man operations on basic home computers. With significantly less traffic on the bitcoin network, far fewer transactions needed to be processed.}

_{Today, that traffic has grown exponentially, and bitcoin mining is increasingly the preserve of large, dedicated facilities set up in places like Iceland, Norway and Texas, with thousands of ASIC mining computers doing nothing but mining bitcoin 24 hours a day, seven days a week.}

_{How to describe the UK’s}_bitcoin_{mining scene? In three words, small and underdeveloped.}

_{The UK offers several advantages for bitcoin miners: advanced infrastructure, including high-speed internet connections and state-of-the-art data centres; a business-friendly environment; and a clear regulatory framework. This framework includes regulations on taxation, anti-money laundering (AML), and the legal status of digital assets, creating a stable backdrop for mining operations.}_{However, high energy costs and energy subsidies pose major obstacles for the industry.}

_{Despite these challenges, bitcoin miners see a compelling commercial opportunity in renewable energy, which drives their investment in energy-efficient technologies and renewable power sources. Miners are not simply adapting to regulations or pressures, they are seizing on an opportunity that aligns with renewable energy realities.}

_{Bitcoin mining uses the highest proportion of renewable energy of any global industry because miners actively seek out the cheapest available energy. This often means harnessing curtailed or excess renewable power that would otherwise go to waste.}

_{By consuming this surplus energy, bitcoin miners not only make use of power that might be curtailed but also effectively help to subsidise renewable energy producers, making renewable projects more economically viable.}

_{After Keir Starmer’s election victory in July 2024, Bitcoin Policy UK, a bitcoin advocacy organisation, released a report suggesting that the bitcoin mining industry could enhance the resilience of renewable power supply.}

_{The report emphasised that bitcoin mining is one of the few technologies offering a ‘completely elastic demand for spare renewable energy'. This means that miners can rapidly adjust their power consumption based on grid availability, helping to set a ‘floor’ price for renewable energy and monetising surplus power that would otherwise remain unutilised.}

_{This unique demand flexibility makes bitcoin mining highly appropriate for the UK. As the UK continues to increase its reliance on renewable sources, bitcoin mining could play a pivotal role in stabilising intermittent power supplies, making renewables more economically viable and sustainable. Bitcoin’s ability to absorb excess energy, adjust to fluctuating supply, and support grid resilience positions it as a key ally in the UK’s renewable energy transition strategy.}

World mining leaders

_{The UK has a long way to go if it wants to come even close to competing with the world’s leading bitcoin mining nations. They include the United States (#1), China (#2), Kazakhstan (#3), Canada (#4) Russia (#5), Iceland, Norway, Saudi Arabia and the United Arab Emirates [}_xxiii_].

_{^{Source: Top 10 Bitcoin Mining Countries and Their Renewable Electricity, Visual Capitalist}}

_{Most of these countries have one thing in common: abundant sources of relatively cheap energy. Many of them have abundant renewable energy sources, in particular hydroelectric power and (in the case of Iceland [}_xxiv_{] ) geothermal power. This makes them well suited for bitcoin miners, many of whom are looking to shift toward more sustainable practices. Cold climates in places like Russia, Norway and Iceland are an added bonus, helping to reduce cooling costs for mining operations.}

_{In all the countries mentioned, government regulation on bitcoin mining is either broadly favourable or non-existent. In some cases, including the United Arab Emirates [}_xxv_{], Saudi Arabia [}_xxvi_{] and Russia [}_xxvii_{], the government and / or state-owned enterprises have even partnered with mining companies to help them expand operations.}

The benefits of having a strong bitcoin mining sector

_{This begs the question: why would a country want to have a strong bitcoin mining sector in the first place, given how energy intensive bitcoin mining is? The answer is two-fold.}

_{First, there is a historical analogy to gold. During the heyday of the gold standard (1870-1920), countries valued a strong domestic gold mining sector because it provided direct access to the hardest form of money of the time. Similarly, bitcoin is the hardest form of money available today. While}_bitcoin_{is not yet officially recognised as a global reserve asset like gold once was, it is likely to gain more acceptance as a form of money in the years to come. By developing a strong bitcoin mining sector, a country secures direct access to this emerging financial asset, positioning itself favourably in the evolving financial landscape.}

_{Second, bitcoin mining can play a significant role in supporting and subsidising a country’s energy transition. Unlike traditional industries, bitcoin mining is uniquely suited to pair with renewable energy production. One of the biggest challenges with renewable energy, such as wind or solar, is its intermittency. Supply is not always aligned with demand – sometimes there is an oversupply of power, which leads to curtailed energy that cannot be used, resulting in financial losses for energy producers. This issue is particularly pressing as countries like the UK move towards more ambitious renewable energy goals.}

_{Bitcoin miners provide a solution by acting as a flexible, ‘always-ready’ buyer of surplus renewable energy. Miners can quickly increase or decrease their energy usage in response to fluctuating supply, helping to stabilise the grid and ensure that renewable energy generation remains economically viable.}

_{Essentially, bitcoin mining helps create a consistent demand for renewable energy, setting a price floor that improves the financial return of renewable energy projects. By turning excess energy that would otherwise go to waste into a productive use, bitcoin mining can help bridge the gap between the growth of renewable energy capacity and the infrastructure needed to deliver reliable energy to end users.}

_{This is not just theoretical. Even in China, where the government banned bitcoin mining in 2021, mining activities have persisted in regions like Sichuan and Yunnan, where there is abundant renewable energy [}_xxviii_{]. The fact that bitcoin mining continued despite the ban suggests that miners found ways to capitalise on cheap, surplus renewable power that would otherwise be curtailed. In the United States, Texas has emerged as a major hub for bitcoin mining, hosting 28.5% of the national hash rate, largely due to cheap energy and a welcoming legal environment [}_xxix_].

The future of mining for the UK

_{The UK's potential as a bitcoin mining hub will depend on its regulatory approach and the extent to which the industry can be integrated into its energy strategy.}

_{If the UK government provides a stable regulatory environment and encourages miners to collaborate with renewable energy projects, bitcoin mining could serve as a tool for achieving a resilient, sustainable energy future.}

_{Miners, in turn, are not merely adapting to regulations – they are actively investing in energy-efficient technologies and tapping into renewable energy sources because it makes commercial sense and aligns perfectly with their operational model of seeking out the lowest-cost energy.}

_{A strong bitcoin mining sector could therefore give the UK a dual advantage:}

_{positioning itself as a key player in the emerging digital monetary system, while also subsidising and enhancing the viability of renewable energy projects, contributing to a more sustainable energy grid.}

_{Over 10% of all wind power generated in Britain in 2024 was curtailed - the cost of which was c£1.2bn.}

_{Bitcoin mining allows for reduced curtailment as this, currently wasted, energy could be used to power the bitcoin network and create immediate monetary value for such renewable projects.}